01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
ONEOK Inc.'s (OKE) 2016 10-K filing highlights a pivotal year for the company, marked by significant growth in its midstream operations and the announcement of a transformative merger with its master limited partnership, ONEOK Partners (OKS).
The company's core business segments—Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines—demonstrated robust performance, largely driven by fee-based revenues and increased volumes from producer activity in key regions like the Mid-Continent (STACK and SCOOP areas) and the Williston Basin. The proposed merger with ONEOK Partners, announced in January 2017, is a significant strategic move aimed at simplifying the corporate structure and enhancing financial flexibility. This transaction is expected to unlock further growth opportunities and provide greater financial strength for dividend payouts.
Investors should note that while the majority of ONEOK Partners' earnings are fee-based, the company is exposed to volumetric risk and commodity price fluctuations, though hedging strategies are in place to mitigate some of these impacts. The company's strong focus on operational safety and environmental responsibility remains a cornerstone of its business strategy.
02—Key points
Key Highlights
- ONEOK announced a definitive agreement to acquire the remaining publicly held common units of its master limited partnership, ONEOK Partners (OKS), in a merger transaction, aiming to simplify its structure and enhance financial flexibility.
- The company's operations, particularly through ONEOK Partners, benefited from increased producer activity in the NGL-rich STACK and SCOOP areas of the Mid-Continent region, driving higher volumes and demand for services.
- Fee-based earnings remained a significant driver of performance, with the Natural Gas Pipelines segment achieving approximately 95% fee-based revenue, Natural Gas Liquids at 90%, and Natural Gas Gathering and Processing at 80% in 2016.
- ONEOK continued to expand its infrastructure, completing several growth projects, including processing plants and pipeline expansions (e.g., Bear Creek processing plant, Roadrunner pipeline phases), enhancing its capacity and market connectivity.
- The company reported an increase in total revenues to $8.92 billion and operating income to $1.29 billion in 2016, with Adjusted EBITDA growing by 17% to $1.83 billion.
- ONEOK maintained its commitment to returning capital to shareholders, with dividends declared per common share totaling $2.46 for 2016, an increase from $2.43 in 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, ONEOK Inc kept $0.04.
- Revenue$8.92B100.0%
- Cost of revenue−$6.50B72.8%
- Gross profit$2.42B27.2%
- Operating costs−$1.13B12.7%
- Operating income$1.30B14.5%
- Interest, other & tax−$943.7M10.6%
- Net income$352.0M3.9%
Where FY2016 revenue went
$8.92B- Cost of revenue: $6.50B, 73% of revenue
- Operating costs: $1.13B, 13% of revenue
- Net income: $352.0M, 3.9% of revenue
- Interest, other & tax: $943.7M, 11% of revenue
Kept 3.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $8.92B$7.76B | +14.9% |
| Cost of Revenue | $6.50B$5.64B | +15.2% |
| Gross Profit | $2.42B$2.12B | +14.3% |
| Operating Income | $1.30B$996.16M | +30.1% |
| Interest Expense | $469.65M$416.79M | +12.7% |
| Net Income | $352.04M$244.98M | +43.7% |
| EPS (Basic) | $1.67$1.17 | +42.7% |
| EPS (Diluted) | $1.66$1.16 | +43.1% |
| Shares Outstanding (Basic) | 211.13M210.21M | +0.4% |
| Shares Outstanding (Diluted) | 212.38M210.54M | +0.9% |
05—Questions
Frequently Asked Questions
What is the strategic significance of the merger with ONEOK Partners (OKS)?
The merger with ONEOK Partners simplifies ONEOK's corporate structure by bringing the MLP's assets and operations fully under the parent company. This is expected to enhance financial flexibility, potentially reduce the cost of capital, and allow for more efficient execution of growth strategies, ultimately aiming to increase shareholder value and dividend growth.
How exposed is ONEOK Partners to commodity price volatility, and what mitigates this risk?
While ONEOK Partners' operations are increasingly fee-based (around 88% in 2016), there is still exposure to commodity price volatility, particularly impacting the Natural Gas Gathering and Processing segment where proceeds from commodity sales are retained. This risk is mitigated through contract restructuring to increase fee components, minimum volume commitments, and hedging strategies for a significant portion of commodity price risk in certain segments.
What are the key growth drivers for ONEOK's business segments?
Growth is primarily driven by increasing producer activity in NGL-rich basins, such as the STACK and SCOOP in the Mid-Continent and the Williston Basin. Specific drivers include the need for producers to connect new production to markets, increased demand for NGLs from the petrochemical industry and exporters, and demand for natural gas from power plants converting from coal, as well as increased natural gas exports.
What is the company's outlook for capital expenditures and growth projects?
ONEOK Partners completed several key growth projects in 2016 and has a pipeline of projects planned for 2017. The company projected capital expenditures between $520-$640 million for 2017, focusing on expanding its Natural Gas Gathering and Processing and Natural Gas Liquids segments, aligning with customer needs and driving fee-based earnings growth.
06—Continue